Sunday, July 15, 2007

Uruguay advances, tax reform

Uruguay advances (Uruguay Avanza). That's the slogan the Uruguayan government is using to market the new tax reform, as a positive change.

The reform entered into play the first of july. We were all required to fill, sign and present a form to each employer before 29th june.

Among the changes introduced by the reform 14 taxes were derogated, and were replaced by only one, called IRPF, in an attempt to simplify our tax system. VAT (IVA) was reduced from the astronomic 23 to 22 (not much if you ask me) for all items except some categorized as basic (canasta basica) which had a greater reduction.

Anyone earning 25.000 (around 1000 usd) nominal, will be negative affected by the tax, meaning will earn less money by the end of the month. This obviously makes a lot of people not so happy with the new tax system. Some even call it the end of Uruguayan middle class.

Uruguay's minister of economy, Danilo Astori, has of course, a different, more optimistic, view on things, he says this reform will benefit 80% of the population.

I'm no specialist, I don't have a clear position on whether this reform is a positive change or not for the country, but I'm glad the government is at least trying to do something different. I'd gladly earn less, if someone could assure me that this is actually going to benefit those in need in Uruguay.

I find that what they are trying to accomplish is very tough, and to some extent even maybe incompatible with Uruguayan banking secrecy (which I think should be removed, but that's a whole different post).

My fear is this will make little or no difference for those in need, and will place a heavy burden on the Uruguayan middle class, people that in cases resort to working in more than one place, 12 hours a day, to earn a decent living.

It's still too early to tell, we can only hope Astori's bet is a winner.
...

17 comments:

Anonymous said...

Why am I not allowed to receive information on visiting Uruguay? I entered my email address and I was rejected. Why?

gabo_uy said...

sorry, you lost me. where did u entered your email address?

Urufish said...

It's very important that Uruguay maintain secrecy laws for foreign investors. There is a great deal of money on deposit in Uruguayan banks that might leave the country if those laws are changed. The government must proceed very carefully to avoid causing a 'run' on the banks... We've all seen what that looks like (2002). No one wants to see it again.

The problem for the government is how do they audit individuals who come under suspicion without frightening foreigners. They could pass a law that says secrecy only applies to foreigners, but as a foreigner, I can tell you that would frighten me. Passing that law sets off an amber light for a foreigner. Red always follows amber.

It looks like they've come up with a quiet way to do this without frightening foreigners. When you sign up to add yourself to the system, one of the things you agree to is to giver authorization to the DGI to look at your bank records. This is a low profile, quiet way to do this without alerting foreigners.

gabo_uy said...

urufish, i'm under the impression that these foreign deposits in Uruguayan banks are not such a great help on Uruguay's economy. Since they can be gone any minute they are not invested in the country, and if I want to get a loan things are not easy for me. My point being if this is not translated to some form of benefit for Uruguayans then it's not a good deal.

Not all foreign deposits should be encouraged but only long term investments.

Seems to me Uruguay's banking secrecy only benefits those in monkey business, and all the money laundry that's going on in Uruguay is more harmful than anything else. Let's take real state for example, money laundry only raises the prices, those wanting to sell speculate with some out of this world proposal, leaving the working guy out of the circuit.

Ant said...

urufish,
Why should the UY govt encourage money laundering? Wouldnt that happen when they provided everyone with this kind of 'secrecy'? Should UY be another Switzerland or the Caymans?
Gabo has a point. Bank deposits are 'hot money'. It could disappear over night depending on the way the winds of the world market blow.

Bank Deposits would be worse than FIIs or FDI for stability or long term prospects of the country.

gabo_uy said...

that's exactly my point

Urufish said...

I came here long after banking secrecy was part of the banking system. I lack the historical perspective to speak with authority on its original purpose.
But it is here and it does exist and it is a legitimate business that provides jobs and benefits the Uruguayan economy.

The banks that cater to this trade pay employees and taxes on their profits. When an investor places his money in a Uruguayan bank, at least he's aware of the country and if an opportunity presents itself, he may very well take advantage of it. If he didn't have his money here, that opportunity wouldn't be on his radar.

You misinterpret the bank secrecy laws as they stand today. Perhaps years ago money laundering was a real business within the banking system but it is not today. Secrecy does not extend to illegal or fraudulent activities in the Uruguayan banking system. If an account is suspected of being involved in money laundering, (there are mechanisms in place that monitor this), the account activity is not protected by the secrecy laws and furtheremore, the accounts can be seized.

There have been at least 2 high profile banks fined large amounts in the past 2 years that have branches in Uruguay. These fines were for 'record keeping irregularities'.

A large number of wealthy people in this world prefer that their legal activities remain secret. That's what the Uruguayan banking system provides. Secrecy for legal financial activities. It's as legitimate a business as any other.

gabo_uy said...

urufish, you have a point there, but then I wonder, if it's 100% legit then how come the states, and the rest of first world nations don't have it?

ant said...

urufish, arent banking secrecy laws absolute? How would the banks keep the account data secure and from what? Would banks perform their own AML check? Would a regulator do it for banks? Do you have something like the FDIC/SEC here? Who fined the banks? If they fined the banks, how did they find out about the irregularities?

I have lots of questions about the banking and finance sector in UY
:)

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Sahezad said...

hi I am from India and I am planning to move Uruguay..

and i dont know spanish..

what is your advice ?

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